M2M Business Briefing 2013: The High Five
Capacity’s run-down of the hottest sectors in the M2M market.
Your alarm clock beeps at 6.30am: As you hit the snooze button, a sensor turns the lights on in the bathroom and runs the shower to a precise temperature. Downstairs, the coffee maker clicks into life in the kitchen: there’s plenty of milk – your fridge, recognizing that you were running low, fired off an order to your local supermarket last night and a fresh pint is waiting for you on the doorstep. The curtains in each room silently draw back, a tiny alarm warns you that the plants need watering and sensors detecting a heavy frost start to de-ice your car windscreen.
Later, as you start the engine ahead of the journey to work, the lights in your house switch off, the heating goes into sleep mode, a host of monitors that will alert you to a water leak or power outage flicker into life and the burglar alarm switches itself on.
No, this is not a Tomorrow’s World-style glimpse into the far-off future, but a snapshot of the type of machine-to-machine (M2M) connectivity that is either already commercially available or in the final stages of testing. Eventually, the technology could prove to be as disruptive as the internet itself, digitising and empowering an infinite number of dumb products so that they can talk to, and control each other wirelessly.
The opportunities are almost overwhelming – one big European network provider has identified as many as 180 different market segments where it sees potential to tap the M2M proposition. Others are breaking the market down into more manageable chunks in order to help applications developers speed up the time to market for new products and turn the trickle of M2M revenues already percolating through to the bottom line, into a much-anticipated flood.
Below, we highlight the five sectors that everybody is talking about…
The Business Case:
Was there ever really a time when cars and lorries didn’t have some sort of embedded telematics in them? As far back as the early 1990s, car makers were buying in roadside assistance platforms and stolen vehicle tracking systems and rebranding them under their own marques and by 2011 there were already more than 90 million connected devices in passenger cars on the world’s roads. Machina research, a well-known information provider in the M2M market, estimates that the auto market will be worth $200 billion to telecoms providers by 2020.
Operators already talk of the car as the “fourth screen” in terms of its massive potential (the other three being the television, the personal computer and the mobile device) and much of the development work currently under way is aimed at transforming the car into an application platform, rather than just embedding a single remote monitoring device somewhere under the bonnet. Machina reckons that close to a quarter of the 1.3 billion M2M connections in the car sector by 2020 will be bandwidth-hungry “infotainment”-style multi-app platforms, which will generate significant revenues to providers.
In terms of the number of connections, however, the dominant force in the sector is likely to remain so-called “emergency call-out” or eCall devices. Around 300,000 BMWs and Volvos in the UK are already fitted with such devices, which establish two-way communications with the emergency services in the event that an air bag in the car is deployed. Under new European Union laws, the system will become mandatory for all new cars from 2015.
Last year, car makers produced a record 60 million passenger vehicles, equivalent to two every second. That statistic alone is enough to get network operators licking their lips. Connected cars can download congestion -free routes during a journey, monitor the engine for signs of a breakdown, help police recover stolen vehicles and even make an appointment with the garage when a service is required.
Meanwhile car-sharing ventures such as US-based RelayRides are harnessing GPS tracking systems to develop services that allow customers to borrow a car with just a click on their mobile phone.
Insurers are also leaping on its potential with pay-as-you-drive policies pegged to data transmitted from a small “black-box” that is fitted to the engine. The sensor wirelessly measures how hard the car brakes, how fast it corners, whether it exceeds the speed limit, what time of the day or night the car is used and how many miles it covers. Car rental firms are also embracing the technology.
Recognising the potential of the connected car, Verizon last year paid $612 million for Hughes Telematics, a supplier of M2M devices to Mercedes Benz and Volkswagen and one of the fastest growing technology companies in the whole of the US.
The Early Adopter:
Formed in 1995 as a joint collaboration between General Motors and Hughes Electronics, GM OnStar launched its first tracking device for top-end Cadillacs in 1997. The company has gone on to produce automatic crash response devices for Audi, Isuzu, Subaru and Volkswagen. OnStar, which is supported by Verizon in the US and China Telecom in mainland China, charges around $10 for an annual subscription that includes vehicle recovery, crash assistance, roadside assistance, remote vehicle diagnostics, hands free calling and remote door unlocking.
An additional plan, costing around $30, includes turn-by-turn navigation. The FBI has been specifically denied access to the system for covert operations although OnStar recently struck a deal to sell data mined by its devices to third party agencies, including the police.
The Business Case:
The explosion in connected consumer electronic gadgetry arguably makes this sector one of the most promising for telecoms operators. The array of devices already coming to the market, from track-and-trace dog collars to networked digital photo frames via a whole host of devices and systems that are aimed at connecting up the home, point to the truly limitless potential of M2M-based consumables.
It is perhaps the phenomenal success of the eReader that best encapsulates the potential of the market. Amazon has never released sales for its Kindle but one firm of analysts, HIS iSuppli, estimates that total eReader shipments have grown more than twentyfold since 2008 to 23 million units. Vodafone, which provides connectivity for Amazon in most countries outside of the US, says Kindle owners typically download a very large percentage of the books that they buy over its network, rather than through the web via WI-FI.
Now, the expectation is that M2M technology will spawn the development of new electronic devices and new consumer experiences, which in turn will create new wireless communications requirements in a seamlessly virtuous circle. Best of all, M2M-based consumer technology converts many single-purchase products into long-term service-based relationships. Canon, for example, is looking at connecting its cameras up wirelessly to the cloud so that photographers can download images straight to an on-line album.
The whole area of M2M-based electronics plays well to the strengths of mobile network operators who already know the consumer market well: operators have learnt the hard way how to develop flexible billing mechanisms and their experiences in pre-paid charging will almost certainly prove invaluable.
Machina reckons the market for connected consumer goods will exceed 4.2 billion devices by 2020 and the total addressable market in terms of potential revenues could be anything up to €400 billion.
Europe is poised to become the largest sector, accounting for 29% of total devices, while Emerging Asia/Pacific will account for 27% and North America 21%.
Much of the traffic that will be generated by M2M gadgets will likely come from applications based around web-TV – around 700 Exabytes a year in all, but some niche household products, including mobile games consoles, digital cameras and pet tracking devices could generate as much as 1.6 Petabytes of mobile network traffic over the same time frame.
As the market evolves, some operators believe that most homes will have as many as 30-40 connected devices each.
The Early Adopter:
If there’s one thing you can say about Tony Fadell, it’s that he knows how to pick a winner. Fadell, you see, is the man who gave the world the iPod and the iPhone. Now he has set up a new company, Nest Labs, to turn the humble thermostat on its head.
According to US government statistics, more than half of all Americans never touch their thermostat, effectively guaranteeing that they pay more for heating than homeowners who don’t own one at all. The potential market is massive – there are close to a quarter of a billion thermostats in the US alone and Americans buy around 10 million a year. The $249 device uses the same technology as the noise-cancelling microphones on the latest iPhone to accurately measure temperatures and also includes motion sensors to determine if there’s anyone home. But the “wow” factor comes from embedded algorithms that learn what the homeowner likes most and adjusts temperatures accordingly. While the device is expensive, buyers will typically recover the cost through energy savings in about 18 months, says Fadell. Longer term, homeowners can expect energy savings of 30% or more.
The company does not disclose sales numbers, but it is understood that within weeks of launching in the autumn of 2011, Nest Labs had effectively pre-sold the entire manufacturing run for 2012.
The Business Case:
The challenge for governments across the world is to cut spending on health while caring for a growing and ageing population. Potentially one of the larger addressable markets for telecoms operators, and an area where some innovators have been active for some time, GlobalData, a London-based research firm expects global spending on telemedicine to top $30 billion by 2018.
While the US is likely to remain the biggest single market, accounting for a staggering 50% of total spending, Asia is set to become the fastest growing region, jumping from total spending of just $2 billion in 2011 to $8 billion by 2018, a rate of more than 20% a year.
There are currently at least one billion people around the world suffering from a chronic disease and the number continues to rise. By 2020 the number of diabetics is expected to double and 20 million people a year are likely to die from heart disease. Statistically, around 50% of all hospital beds are occupied by patients with chronic diseases who could equally well be treated from home, using remote monitoring technologies.
The promise of M2M connectivity is to refocus medical resources, reduce costs and offer better quality patient treatment.
Developers are working on a mindboggling array of devices that encompass every facet of medicine from radiology to cardiology and dermatology to psychiatry.
Graduates from the ESADE Business School in Barcelona, for example, have developed an app called Dr Diabetes which runs off a handheld M2M device. The gadget reckons to be able to cut the bill for looking after diabetics – estimated at $465 billion a year world wide - by anything up to 73%.
Meanwhile, SkinScan, a start-up company based in Bucharest, is selling a smartphone app that lets worried sun worshipers take pictures of suspect moles. Scanners back in Romania analyse the results looking for abnormalities and an algorithm sends back the results rating the mole from low- to high-risk. Just over 200,000 cases of skin cancer are reported across the world each year. If caught early, the 5-year survival rate for sufferers is 91%. Left unchecked, this falls to just 15%. The technology can also offer the elderly a chance to remain independent in their own homes by offering doctors and relatives the means to check on their health, safety and well-being. By 2050, a staggering one third of America’s population will be over the age of 60 and across the world, that number will top two billion.
The Early Adopter:
When a rolling blackout plunged the University of Minnesota hospital into chaos on Halloween night, 1957, the lives of patients on an experimental heart surgery ward hung in the balance for more than three hours.
The next day, the head surgeon asked an engineer friend to devise a battery-operated pacemaker and one of the most important medical devices of the last century was born.
Last year, Sorin, a Milan-based medical devices maker, broke new ground when surgeons in Canada successfully implanted an M2M sensor in a patient’s heart.
The sensor, which is supported by Orange Business Services, sends data to a secure server in the cloud, where it is constantly monitored. In the event of a problem, the server sends a warning to the patient’s local GP, triggering an alarm on the doctor’s smartphone or PC.
One in three Americans suffers heart disease, costing upwards of $273 billion in medical care each year.
Sorin believes its M2M application will cut that bill drastically, reducing the number of times patients fitted with pacemakers require in-clinic checks.
The Business Case:
The industrial sector has recognized for decades the need to monitor and control machinery in order to maximise productivity and profitability and to comply with increasingly onerous regulations covering safety. Parts of the manufacturing chain have embraced the potential of M2M communication for years – the oil and gas industry, for example, helped pioneer remote monitoring devices.
At the most basic level, M2M solutions can offer manufacturers round-the-clock remote monitoring to produce huge swathes of data that can help pick up on maintenance issues and optimise production. And because a lot of heavy plant these days is leased rather than bought outright, equipment owners can use track-and-trace devices to monitor their gear and its use and thus develop better invoicing and usage control systems.
But more compelling, is the notion that M2M technologies might help manufacturers edge up the value chain into customer service-related offerings. There is already mounting evidence to suggest that manufacturing companies in Europe and North America are starting to wrestle back the initiative from China by using M2M communications to evolve from hardware producers to more profitable service-related business suppliers.
Industrial automisation revolutionised manufacturing in the 1970s and 1980s. The M2M market is poised to shake it up once again. Last year, US manufacturers spent $230 billion on research and investment yet just 1 in 5 companies use M2M technology to boost productivity. That will change as more manufacturers start to harness M2M data feeds to build detailed performance analytics, enabling them to learn more about the cause of equipment failure in key machinery and the way to minimise expensive downtime.
The potential market is huge incorporating everything from heavy industry to manufacturing, processing, transport and distribution and warehousing and storage.
The Early Adopter:
When Airbus announced plans to build the double-decker A380, it commissioned Rolls Royce to develop the world‘s largest jet engine, the Trent 900. The $38-million a-piece engine, knick-named the “whispering giant” became the first civil engine in the world to incorporate real-time M2M sensors. Monitors record up to 30 different measurements, including temperatures, air speeds pressures and vibration tolerances. The data is sent back live, via satellite to flight operation centres in England and Germany where it is used to develop maintenance schedules. In an extreme emergency, however, the system can alert engineers on the ground to a potential problem that can be relayed immediately to the pilot.
The Business Case:
Wireless smart metering is a fundamental enabler for utilities companies, helping to monitor plant and field equipment and to reduce the cost of supplying light, power and water to customers. By automating communications between producers and consumers through M2M technology, smart metering can add transparency to user habits and cut waste, as well as help providers optimise power generation and trading.
In Europe, regulators are driving the adoption of M2M technology and by 2015 IMS Research estimates that the take up in Italy will be 94%, while 70% of customers will use them in the Nordic region, 73% in Spain and Portugal, 65% in the UK and Ireland and 49% in France. In total, Machina Research estimates that the utilities sector will account for 1.5 billion connections by 2020. In the UK, the Department of Energy and Climate Change is spearheading the replacement of 53 million gas and electricity meters by 2019 at a cost of £12 billion in today’s prices.
Allied to the roll out of smart metering is the move to develop smart power grids using M2M communications. Intelligent power networks can adapt immediately to spikes in demand or outages and also offer large consumers the flexibility of dynamic pricing.
First, the good news. Smart metering has the all-important backing of regulators across Europe, thus ensuring that the M2M utility market will grow from around 100 million connections in 2010, to a whopping 1.5 billion connections by the end of the decade – at least according to Machina Research. All but 1% of those connections will come in the form of smart meters, implying that the total value of the market should be around $38 billion by 2020 – up from around $11 billion in 2011.
But the sting in the tail, is that the market is rapidly maturing. Because a large proportion of revenue in the sector comes from installations and the sale of devices, the market will start to slow significantly by about 2018. Machina research estimates that mobile network operators will be lucky if they can capture much more than about $3.2 billion in revenues of the $38 billion pot by the end of the decade.
The Early Adopter:
The deployment of smart meters in the UK is widely accepted as being the largest deployment of a single M2M technology ever undertaken and the biggest upgrade in infrastructure in UK homes for more than 40 years. The plan is due to start in earnest in the second quarter of 2014, but British Gas has already fitted meters into 500,000 homes and small businesses.
The system is effectively powered by a Vodafone communications hub, or home area network. The hub talks between a visual display and the meter and collects information on gas and electricity usage every 30 minutes. The data is then relayed overnight through Vodafone’s wireless network to a central data site at British Gas. The technology will clear the way for on-demand tariffs, allowing energy companies to charge by the hour, and to put a premium on power usage at peak times.